Small, frequent spikes in fuel prices to dent consumption, challenge growth

The recurrent increases in fuel prices over the past 10 days are eating into the margins of transporters, who will be forced to pass on the hikes to their customers. This, in turn, is set to make the prices of daily consumables and other goods dearer, affect consumption, and slow economic growth, said transporters and analysts.

Freight rates on grand trunk routes have shot up 3-4 per cent month-on-month in the past few days, according to the Indian Foundation of Transport Research & Training (IFTRT). These are set to go up further if the fuel price hikes continue.

“The incessant price hikes in small doses are like a ‘frog in boiling water’. If this continues, the freight rates will notch up to an all-time high by May,” said Jasjit Sethi, chief executive officer, TCI Supply Chain Solutions, adding, this was hitting transporters of all hues.

Sunil Sinha, chief economist, India Ratings & Research, said the fuel price hikes would have a cascading impact on economic growth. “The daily price increases will impinge on the pockets of households. They would spend more on fuel and cut expenditure on other items. This will impact GDP as consumption demand accounts for 57-58 per cent of it.”

Oil marketing companies (OMCs) hiked petrol and diesel prices on Saturday. The 80-paise hike per litre took the total increase in rates in the last 12 days to Rs 7.20 per litre. Petrol in Delhi will now cost Rs 102.61 per litre as against Rs 101.81 previously, while diesel rates have gone up from Rs 93.07 per litre to Rs 93.87.

According to Sinha, the price adjustments that have taken place so far are not enough and more is required if the OMCs are to recover the costs. “Even an expectation of a further price increase will impact households,” he said, adding that once the transport prices went up, prices across the board, including those of daily consumables, too would go up.

While rising fuel prices are one part of the story, transporters looking to buy new/old vehicles will have to folk out more. The creeping increments have affected the transporters’ sentiment adversely, said Vinod Aggarwal, managing director and CEO, Volvo Eicher Commercial Vehicles (VECV). Prices of trucks across the range are set to go up from this month. VECV too will hike prices by 200 basis points from Friday, said Aggarwal.

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